COPYRIGHT FOR ILLUSTRATION BELONGS TO RICHARD T. BISTRONG.
In
the June 2013 issue of Business
Compliance (Baltzer Science Publisher, Anthony Smith-Meyer, Editor), Scott
Killingsworth (Partner, Bryan Cave LLP) writes about “Ethics in the Executive
Suite: The Best, The Brightest and a Wicked Problem.”* The work is the first part of a two part series, and my focus
is on part one “The C-Suite Crucible and Behavioral Ethics.” In sum, the “wicked problems” of behavioral
ethics that this article focuses upon in the C-Suite, in my experience, are
also uniquely present in the thinking and behaviors of international business
executives who confront corruption on the front lines of international
business.
My
goal today is to call upon Mr. Killingsworth’s behavioral and organizational
paradigm to demonstrate how most of the dynamics that the article describes as
existing in the “environment of the C-Suite” are also prevalent with respect to
international business executives. I will use Mr. Killingsworth’s piece as an
intellectual companion guide to my own perspective of international business
misconduct, especially in the context of international bribery. Finally, before setting out on this journey,
when I speak of “international business executives,” I am referring to (from an
organizational chart perspective) those at the front line of international
business who also have group responsibility; thus, I refer to those who have supervisory
authority and direct reports along with associated P and L responsibility.
Mr.
Killingsworth isolates a number of elements as testing “the integrity of
executives,” and my focus is on those which I have seen elevated in the
thinking (including my own) of international business personnel. No single
issue dominants, for as Mr.
Killingsworth well states, when it comes to misbehavior “it seldom happens in a
single step.” Thus, I share my reflections on this work to expand upon our
understanding of how misconduct can so easily be rationalized, whether in the
C-Suite or in an overseas office of an intermediary. So, lets take a look under the hood of an
international business team, and see where the dynamics of misconduct might
exist.
- “The lure of large performance-based incentives” which can translate into “outsized temptations to do what it takes to obtain the desired results.”
As I
shared at the Dow Jones Global Compliance Symposium, where international
business executives have incentive compensation indexed to personal performance
in high-risk (corrupt) areas “compliance becomes bonus prevention.” As Mr.
Killingsworth states “here the notion of failing to “hit the numbers” or of
“losing” a bonus one has come to expect, or failing to close a sale that one
has considered likely, has obvious relevance: risk-taking increases and ethical
standards may sag.” In a public-company environment, that pressure gets
dramatically magnified at every quarter, as those pressures re-set from start.
Nonetheless, regardless of company size or public listing, the entire issue of
large incentive based compensation can create an inherent conflict of interest
when it comes to decision-making, for as Mr. Killingsworth affirms “it is not
just difficult, but impossible, to be truly objective about a decision when we
have a significant interest in the outcome.”
As
to the external setting, international procurements are often far and few
between, marked with unstable state institutions (see work by Matteson Ellis), creating
a “win big or lose big,” environment, with the obvious consequences upon
forecast and bonus. Where that bonus is
tied to personal performance, as Mr. Killingsworth states “escalating
commitment” may follow, where one takes greater risk to avoid loss (personal
and professional), and that is a process “that seldom ends well.” It is like
covering a bad bet with more money and a recipe forever increasing “small
bribes” to insure success.
- “The ability to operate with great freedom and little supervision.”
In
many organizations, supervision of international business leaders can often be
“out of sight, out of mind,” where such personnel have more discretionary
authority and operational freedom than their domestic counterparts. Having
spent the early part of my career in US domestic sales, I can state with great
certainty that as a domestic sales Vice President, I was subject to
dramatically more oversight and audit in my work, comparative to my subsequent
international responsibilities. I don’t think that was a unique experience,
especially when a company considers the domestic or home market as the “primary
market.”
I
have seen many organizations treat international sales as a “secondary-sector”
with the resultant impact upon supervision and discretionary authority for
international executives. Where managers retain such power, as Mr.
Killingsworth describes, it can be “difficult for subordinates or auditors to
see the entire process that adds up to a violation.”
- The impact upon thinking "by early success in high-risk initiatives."
From
a personal perspective, this is a significant contributing element to risk
taking; thus, it is worthy of great consideration for those who have compliance
responsibility. Given the opportunity to get away with “small bribery,” (see
post on “Countering Small Bribes”) especially given that when the talk turns
to corruption on the front lines of overseas business there are often no
witnesses, that dynamic can have an enormous and calamitous impact upon future
thinking. How? As Mr. Killingsworth states, by “unwittingly
increasing risk appetite over time” and creating a “vicious cycle” of
overconfidence.
In other words, getting away with prior bad
behavior leads to great distortion when thinking about the consequences of
future corrupt transactions, as incremental risk “may lead to more serious
violations.” As Mr. Killingsworth
describes “where misconduct is justified by rationalization and reinforced by
success, small incremental steps can take us a long way.” In other words, once front line international
business personnel “dip their toe in the water” of corruption without getting
caught, and with financial success, a rationalization sets into the thought
process which starts to build momentum, and which then gets mixed into the
normal course of business thinking. It then often results in making “compliance
decisions on likelihood of detection.”
That
thinking reflects what Mr. Killingsworth describes as the dynamics of “if
nothing bad has happened, this is
evidence nothing bad will happen.”
Furthermore, this can “distort judgments of whether an activity is in fact
illegal and, more cynically, judgments of the likelihood that anyone will
notice the violation, or the severity of the consequences.” It is not my
perfect storm of rationalization, it is intellectual Armageddon.
- The thinking that a small infraction "does no one harm" and a belief that "the general rule does not apply."
In
prior posts, I speak of the illusion that bribery has no victims. Most front line business personnel do not consider
the impact of bribery upon local governance, standards of living, etc. They
might even think that they are helping those local public officials who are
very poorly paid by supplementing them with “small bribes,” and that the end
user still gets the best product and level of service. Sometimes bribery
results in the end user paying a lower price of goods and services, which
further distorts the illusion a “win-win.” When you add in the thinking that
“this is how it is done here” or “it is not even illegal here,” that makes for
a volatile mix of rationalization.
As
Mr. Killingsworth states “a suitable rationalization protects our positive
self-esteem and denies the reality that we have selfishly violated a rule.”
Indeed, when the thinking is that no one gets hurt by bribery, and that it is part of local norms, that rationalization
can easily win out over a more reasonable calculus to stay away from a
potentially corrupt and liberty threatening decisions.
- My own journey through self-deception
As
Mr. Killingsworth states, the sum of these factors, (along with others which
are in the article), are “like the weight of water against a dike,” and that
these variables “exert constant pressure on ethical decision-making at the top
of an organization.” Agreed. However, having never made it to the C-Suite, but
having described my own “perfect storm of rationalization,” this is a model
that has significant relevance to those who supervise and work with international
business executives. As Mr. Killingsworth’s describes, “where high stakes
combine with temptation, power, pressure, urgency and ambitious people under few
external restraints, a high-impact risk exists and must be addressed.”
As
for my personal reflection, well, as Mr. Killingsworth states “when we start
down the path of misconduct, the first person we deceive is usually ourselves”
and the attraction to “money, power, autonomy, recognition, attention and
status…may be strong enough to overpower allegiance to ethical or legal rules.”
Well said, and a difficult chapter in my own life which I
now can share with others.
* Killingsworth’s complete paper, ‘C’ Is for Crucible: Behavioral Ethics, Culture, and the Board’s Role in C-Suite Compliance, is available as a free download at http://ssrn.com/abstract=2271840. The abridged version published in Business Compliance as Ethics in the Executive Suite may be requested by contacting info@baltzersciencepublishers.com Subject: C-Suite ethics - Scott Killingsworth
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